London, slow trading, job losses, Turkey, TUI etc.:

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A DAY IN THE LIFE:

Having been bugged by your laptop to ‘install updates’ for a day or two, have you ever forgotten to tell it ‘no’ and then had your machine turn off on you at the most inopportune of moments?

Because that’s what happened to Langton yesterday.

And then the thing had the cheek to say it was ‘working on updates,’ that it 2% done’ (slowly rising to 3%) and that you shouldn’t turn off your PC as ‘this will take a while.’

All of which is a bit like taking the steering wheel out of your car when you want to nip to the shops only to tell you that you can have it back in a day or two and please be patient.

Never mind that you might be hungry, thirsty or need to buy a couple of beers in for the evening because the steering wheel thief saw its opportunity and pounced and there’s precious little that you can do about it.

Anyway, we got behind the wheel after a while and no permanent harm was done. Decent weather up north today, in the south, not so much.

But it’s Friday and that heals most wounds. On to the news & follow us for real time developments on Twitter at @brumbymark:

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LONDON TRADING, THE SHORT AND MEDIUM TERM OUTLOOK: Bricks & mortar assets such as pubs & restaurants, can’t be moved in the short term. They are where they are. 2 Oct 2020:

Introduction:

• Until the end of Q1 this year, London had more often than not outperformed the UK provinces.

• In the hotel market, Whitbread (Premier Inn) made a major attempt to enter the London market

• Meanwhile pub operators, though often not breaking in to new territories (particularly London) because of the difficulty of acquiring freeholds, often saw their performance held back by their lack of a London presence

• We commented on a number of occasions that the extremely good (until recently) performance of Young’s & Fuller’s, was down to both skill but also a geographical accident of birth

• This has now rather gone into reverse and there are a number of less than positive indicators for the medium term

A reluctance to, or a proscription on, travel:

• This is a current fact of life and, as London is bigger than any other city in the UK, it is self-evident that more travel is needed in order to get into the middle of it

• The ‘London villages’ such as Wimbledon, Richmond, Ealing, Battersea etc are performing much better (or less badly) than is the West End and the City. This is where people live.

• Linger times or dwell times may also be down. This is a feature at some travel hubs. People may wish to do what they need to do – e.g. get to a train station and get out – but they may be less willing to hang around

A huge office hub:

• London is a big place. Between two thirds of a million and a million people work in the City and Canary Wharf alone only, just now, they don’t

• An over-dependence on office workers – when they are absent – is not a positive.

• After urging workers to return to the office over the summer, everything has been thrown into reverse potentially ‘for up to six months’

• Workers are being told to work from home if they can and to travel and mix as little as possible

A vast & world class entertainment district:

• The West End is a brilliant place in which to do business until, suddenly, it isn’t.

• Theatres are empty or shut, casinos have to close at 10pm and the reasons to venture into the West End are much reduced

• Shaftesbury maintains the area is resilient but New West End (see below) says that footfall on Wednesday was down by 65%. The weather has an impact on short trading periods, but the number is regularly down 50% or so.

Overall:

• London will no doubt prove to be a resilient market but the amount of time that businesses are expected to go without revenue is critical

• Drowning in seven feet of water is every bit as fatal as is drowning in a thousand feet and, if companies do not have the resources to survive, then they will fail

• The problem, and it is a real one, is that no operators have any certainty as to how long they need to keep feeding the pot in order to stay in the game

Trading ‘on the other side’:

• The size of the prize is also increasing in that competition may be reduced.

• New entrants such as Various Eateries and Boparan may bolster capacity to some extent – but there will doubtless be fewer restaurants for some time to come

• And some costs may be lower. Landlords will be under pressure to reduce existing rents and new-lets will be at the lower, market rent

• Labour costs may be reduced as shortages of chefs etc will be less acute if there are fewer restaurants

PUBS & RESTAURANTS:

Trading levels:

• S4labour research shows that hospitality like for like sales in September were down 4.3% compared to the same month last year.

• Food > Drink.

• S4Labour says ‘with consumer confidence boosted in August by EOTHO, the momentum seems to have continued as sites that were trading showed like for like growth in food sales of 12.4%, while drinks sales were in decline of 16.3%.’ Drink sales had initially performed well. EOTHO pulled food sales up and this appears to have stuck,

• S4Labour says ‘it’s worth noting that this only takes into account sites that were trading.’ It says 9% of sites are still closed.

• Provinces > London.

• S4Labour says the provinces were up 2.3% growth compared to 28.2% decline in London. it says ‘on top of this, 15% of London sites were closed compared to 8% of Non-London. We see this as a reflection of the impact of working from home, and that London relies on a steady flow of commuters into the city. The effect of the curfew was not fully realised in the month and we will continue to monitor this impact of this and the change in consumer behaviours.’

• S4 says ‘the continuation of sites’ own offers after EOTHO has definitely bolstered sales. We are concerned about the ongoing impact of the curfew as initial data shows this has had impacted by circa 13%.’

• New West End says that the footfall recovery seems to have stalled. It says ‘West End footfall was flat week-on-week on Wednesday, 30 September.’ It adds that, compared to the same day last year, footfall was down 65%. That’s a pretty big number.

• The FT reports that ‘pub operators are lining up steep job cuts after the government’s 10pm curfew caused drinks sales to plunge by more than a third.’ This may be recovering somewhat but job losses are still likely.

• The FT quotes Young’s as saying that it will have made 500 of its 4,200 staff redundant by the end of October, with Fuller’s also saying it will cut 500 jobs. City Pub Group may cut 250 and Greene King has said it would permanently shut 11 of its 22 Loch Fyne restaurants, putting 180 jobs at risk.

• The BBPA says ‘despite a slight uptick in year-on-year sales growth at the beginning of the week, pub and bar operators reported that trading was down 45 per cent on Thursday compared to the equivalent day last year and continued to decline over the weekend.’

Company news:

• London Union boss Jonathan Downey has said that ‘Dinerama closes this weekend. Gone for good. After five years, one fire and 2 million visitors, we’re finished because of our landlord. Sunday is the last day’s trading of the best business I’ve ever been involved with.’

• Constellation Brands has reported Q2 numbers saying that, despite COVID-related challenges, the company has managed to generate reported basis EPS of $2.62. It says ‘beer depletion growth remains strong [and] current production in Mexico [has been] maintained at normal levels.’

• Constellation says its Wine & Spirits Business has delivered ‘strong margin performance and double-digit Power Brand growth in IRI channels.’

• The Real Greek, a part of The Fulham Shore Group, has tweeted ‘we have decided to continue the Eat Out to Help Out scheme onto October.’ It says ‘this time it will be 50% off all Main Menu dishes (not set menus or lunch menu), Monday-Wednesday all day at any of our restaurants in October.’

• H&M is to cut 250 stores globally.

Other news:

• The Government yesterday announced new measures to come into force from midnight on Saturday for parts of the North East and North West restricting residents meeting anyone outside of their household or bubble in any indoor setting. This includes pubs, restaurants and bars. The measures apply in Hartlepool, Middlesbrough, Halton, Liverpool City Region (Liverpool, Knowsley, Sefton, St Helens, the Wirral) and Warrington. The rules were relaxed in Bolton.

• The BBPA has responded to the launch of the Alcohol Duty Review call for evidence saying that it welcomes it adding ‘the Government now has the opportunity to set out how it will back Britain’s world-renowned pubs and breweries, which support 900,000 jobs, contribute £23 billion to the economy and play such a vital role in local communities throughout the UK. Our sector needs more support to help it recover from the devastating impact of COVID-19.’

• The World Trade Organisation is to permit the EU to impose tariffs on certain drinks products coming from the US

• YouGov has found that 37% of employers plan to make staff redundant before Christmas. The furlough is currently tapering and it ends this month.

• In the US, market research agency SeeLevel HX has released its 20th annual QSR Drive-Thru study saying that 91.3% of employees were wearing masks but only 22% were wearing gloves

• SeeLevel HX says that only 9.1% of restaurants seemed to have limited menu choice. Contactless payments had risen sharply.

• The Food and Drink Federation has reported that H1 exports of food and drink from the UK have fallen for the first time since 2015. The FDF says ‘a fall in exports in the first half of 2020 demonstrates the huge challenge currently facing UK food and drink exporters. We also have serious concerns about our access to existing EU trade agreements, with more than £1.7 billion of UK exports at risk where continuity deals haven’t been agreed.’

• The New York comptroller’s office says that COVID-pandemic has devastated New York City’s restaurant industry and its employment. NEN quotes the report as saying that ‘employment in the city’s restaurant industry was still only 55% of its level in February, before the coronavirus pandemic was declared and dining restrictions were ordered.’ The report says ‘while there are indications that revenues for open restaurants improved since their low point in March 2020, many establishments are still struggling and others remain closed.’

• The comptroller’s office said that New York City had 23,650 establishments in 2019, provided 317,800 jobs, paid $10.7 billion in total wages citywide and delivered nearly $27 billion in taxable sales. It says the pandemic has reduced operations and left tens of thousands unemployed.

HOTELS & LEISURE TRAVEL:

• Carnival has announced that ‘following the U.S. CDC’s decision to extend its no-sail order for cruise operations, Carnival Cruise Line is notifying guests and travel agents that it has cancelled cruises from all U.S. homeports except Miami and Port Canaveral for November and December 2020.’

• Carnival says ‘while operations from Miami and Port Canaveral in November and December are still not certain, Carnival is focusing its initial return to service from those two homeports, whenever that might occur.’

• Carnival says ‘as we have said throughout this pause, our return to operations will be gradual and phased in. And while we are not making any presumptions, once cruising is allowed, we will centre our initial start-up from the homeports of Miami and Port Canaveral.’

• Travellers returning from Turkey will be required to quarantine for 14dys on their return from 4am on Saturday morning. TUI UK and the newly relaunched online Thomas Cook website are currently cancelling holidays to Turkey.

• TUI has commented on media reports that it is looking at raising as much as €1.5 billion through disposals or a rights issue. It has said that it is looking at ways of raising capital but that the amount may be lower than that reported.

• SAGA has announced that its placing and open offer has raised gross proceeds of approximately £74.8 million.

• Ferry operator P&O Ferries is cutting its Hull to Zeebrugge route due to low demand.

• STR reports that hotel occupancy in the US in the week to 26 September was flat on the previous week. It says occupancy was down 32% on a year ago, room rates were 30% lower and REVPAR was down by some 52%.

• Travel Weekly reports that Thornton’s Travel in Bristol has ceased trading after 80 years in business

• IATA has said ‘this is not the time for more environmental taxes that punish people for reconnecting with family or who contribute to economic recovery with business travel.’

OTHER LEISURE:

• Independent boutique bowling operator Lane7 has confirmed plans to launch three new sites in the coming months. Lane7 says ‘as an industry, we’ve experienced the toughest and most painful period imaginable. Openings in Leicester, Manchester and Bristol have been long in the planning for us and, without Covid19, I’m confident most of these sites would have been open by now.’

• Sky reports that up to 80% of exhibition jobs could be lost when the furlough scheme ends this month. There is virtually no demand and large gatherings are currently not legal.

FINANCE & MARKETS:

• IHS Markit released the UK manufacturing PMI yesterday saying that the number fell slightly to 54.1 from a 30mth high of 55.2 in August. Markit says ‘output and new orders increased as new work intakes improved from both domestic and overseas markets.’

• Markit says ‘September saw UK manufacturing continue its recovery from the steep COVID-19 induced downturn. Although rates of expansion in output and new orders lost some of the bounce experienced in August, they remained solid and above the survey’s long-run averages. Export demand is also picking up, as economies across the world restart operations and adjust to COVID-19 restrictions.’

• Markit says ‘business sentiment remained positive as a result, with three-fifths of UK manufacturers forecasting a rise in output over the coming year.’

• EY’s Brexit Tracker reports that 7,500 UK financial service jobs have been relocated to the EU. It says that assets totalling more than £1.2 trillion have been moved from the UK to the European Union.

• Britain is offering EU fisherman access to UK waters for three years.

• Sterling lower at $1.2858 and €1.0975. Oil lower at $39.84 and UK 10yr gilt yield up 1bp at 0.23%. World markets trending lower with London set to open down around 70pts.

RETAIL WITH NICK BUBB:

• Today’s News: After the flurry of company news mid-week, today has gone quiet, but mighty Ocado came under pressure yesterday, after it emerged that Ocado is being sued in both the UK and the US by the Norway-based automated warehouse developer AutoStore in a legal wrangle over systems patents, although Ocado claimed in a brief statement that “…we have not received any papers in relation to these claims and this is the first we have heard of this new claim.  We are not aware of any infringement of any valid Autostore rights and of course we will investigate any claims once we receive further details. We have multiple patents protecting the use of our systems in grocery and we are investigating whether Autostore has, or intends to infringe those patents. We will always vigorously protect our intellectual property”.

• News Flow Next Week: As we move further on into October and Q4, there is less going on next week, but the Tesco interims and the Frasers AGM on Wednesday will be big talking points. The week kicks off on Monday with the Mulberry finals. Wednesday also brings the Just Eat EGM on its acquisition of Grubhub in the US, whilst Thursday brings an update from the second-hand car supermarket Motorpoint.